Recession or Cyclic downturn?

The automotive sector in India is under significant stress. Sales are going down drastically in unprecedented numbers. It is a vast sector and has already started giving layoffs, having non-production days- a euphemism for plant closures. A large number of dealerships have cancelled their tie-ups as the business does not appear to be lucrative. On top of this, BS-VI norms will be starting from 1/4/2020, which will cause further stress as no BS-IV vehicle will be even registered from 1/4/2020.

More difficulties will come up during this year and maybe even next year. The reasons for this is that CAFÉ norms will come into the picture from 2022. There is already a discussion of auto companies going slow on investments, but statutory requirements are mandatory, and these companies cannot avoid them. BS-VI norms and CAFÉ norms will increase the prices of cars. One thing that never comes into the discussion is the sale of old vehicles. It is not that people are not buying cars. People suddenly don’t change their habits. But people become practical and smarter.

George Mathew

I will tell you what I mean. I read an article from Indian Express which was discussing the sales pattern in the industry in general. The data in the table is for two thousand plus companies. The table above shows the business figures for April-June quarter comparison of 2018 and 2019. Sales of AC’s are generally seasonal. But other items like TV’s, Microwaves have not shown any decline. Sales are almost normal and have only shown seasonal changes.

I want to write a disclaimer. I cannot “read” the financial data, and hence, I cannot analyse it too! But as a layman, I thought there is not much difference for these two years. The sales have gone up in 2019.  Operating margins have reduced slightly. Depreciation is quite high in 2019, indicating the investments done in the that year. Hence interest paid has gone up maybe due to investments in plant and machinery. Proportionately tax paid has gone down, and profit has gone down. These figures do not show any drastic changes happening in the market. Companies considered in this table exclude banking and finance companies.

Then why is the auto sector in distress? I have mentioned that people have become smarter and practical. In the last financial year, the total number of vehicles sold was large. But the sales of new cars have come down. There is a secondary market where people buy used cars. The total number of old vehicles sold was four lacs more than new cars. Why is this happening? Small cars like Alto are now sold more in three-tier towns. Young people in big cities want to buy bigger vehicles. I understand that a 3 to the 4-year-old big sedan is now available for the price of an Alto. The trend of buying used fancy cars is affecting the sale of new cars.

I am not arguing that there is no recession in the auto sector. But we should not forget that it is one of the most protected sectors in India. Customs duty on cars below US $ 40000/ is 60 % and above this value 100%. The used cars have a customs duty of 125%.  For various reasons, this sector has remained inefficient. After many international companies started coming to India and opened their factories in India, the auto sector had a tough time. Some Indian companies took 15 years to reach the quality levels of global companies. One company that followed a correct way of doing business is Bajaj Auto. They currently export 1.8 million motorcycles every year. It gives them a buffer when the local market sales dip!

Some of the reasons for the downturn could be that main barrier for transport vehicles like octroi has been removed. The action has speeded up the turnaround time of vehicles  substantially. The effect would be that the number of trucks needed to transport material would be less than those previously required. Another reason that is making rounds is that demonetisation effect causing the sales to drop. Is such a large industry dependent on cash? In the rural areas cash was being used to buy vehicles; even large SUV’s were bought using cash. If people had so much cash with them why did they not use bank instruments to pay? The answer is obvious. Not paying taxes honestly is a habit that does go away quickly.

What was the auto industry turnover 20 years back? How much has this industry grown? The auto industry has made decent profits all these years, so I am sure they have reserves. Pollution norms have been known to everybody, so no point in raising hue and cry about investments needed.

Any sector that is in stress always talks of alarming results of the recessionary trends in their business. Should the government give selective help to the stressed industry? Is such action fair to other sectors which are doing okay in their business? The financial stimulus can be a solution, but such money gets diverted from equally essential areas. We should not forget that high tariff on imported vehicles has helped the industry for a long time.

All the companies in the automotive sector are large organisations, and they have the wherewithal to overcome current tough times. Asking for a reduction in GST is a short-term major and is taking a myopic view of the situation. In the last couple of years, the government has been receiving feedback from business about GST. Government has already made changes for the benefit of both industry and the government. Making changes for a specific industry for a short duration is an incorrect way. The auto industry has been generating decent profit for the last few years. Some things have changed; some new variables have come into play. There are who experts can find a solution and suggest corrective actions. I am sure the industry will come out of it.

Raising the alarm, making statements like “It is the wake-up call for the Government of the day” does not solve issues. But the government help should be an exception but not a rule. There is an interesting story about General Motors and Chrysler. When they were in serious financial trouble, a decade ago, the senior executives of both companies were called to Washington DC for discussions. In the initial informal chat, they were asked if they reached Washington the previous night. The surprised executives said, “Oh, we landed only about 45 minutes back. We chartered a plane to come here.” The government official was aghast!

So where is the vendor conference this year? Italy, Las Vegas, Macau? How can you have the conference inside your factory? Cost cutting is for others. I have attended General Motors vendor conference once in Pune. It was at the Oxford club and there were at least six helicopters used by GM bosses to arrive at the venue! It is not a surprise that GM closed their shop in India.

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Budget! It’s not a Game show!

Annual Government Budget has been a political show for years together but over a period it has lost its sheen and it is less of a show. When India became an independent nation, budgeting process had to be started. India as a whole, had never been a sovereign country before independence. In 1947 November, India’s first budget was presented. Of course, India was a poor country then and even now the large majority of the people are poor. But over a period, India started many industries, services, IT services was a major proponent of growth. India has a large number of farmers and farming sector, even today, it engages largest number of people. With the rapid growth in various sectors, India’s GDP is in top five nations in the world, though its per capita income is still very low, due to large population.  

As expected, India had a great difficulty in budgeting as there was nothing much in the kitty. Balancing the budget was a great art and there was always a conflict in budgetary allocations. Naturally, we started with education, India opted for large public-sector industries, big dams to help farming and to generate electricity. Then there was war with China in 1962, Pakistan 1965 & 1971 and one in 1947. With these wars, allocation started going more towards arms and ammunition. Factories were built to produce war material. Like any poor household, this strategy put stress on other sectors like agriculture, education. Private manufacturing was looked down upon and the industrialists were looked down upon as profiteers. Profit was a cuss word in those days, hence there was permit Raj and there were limits on the quantity of goods that could be manufactured. This type of thinking always led to scarcities and shortages. This further led to hoarding and black marketing. Added to this was political turmoil of 80’s. I think Bajaj Auto was the first company who challenged the government and said we will produce more scooters than the capacity, let us see what you do!

Since last ten years things have improved in India’s finances. Money is around and governments are trying to be prudent about allocations. Making a large country like India modern in science & technology, engineering, transportation, farming and defense is not a joke. Another important area is digitalization of the nation. Huge allocations are required for all these sectors.  

There is a large middle class, rich class, and biggest class is the poor class. Other than allocations for various sectors mentioned, the poor class needs to be supported in such a way that they become self-sufficient over a period of time. Other two classes have the where withal of taking care of themselves with or without Government support. This is what the government has done in the current budget. Poor will not be helped by dole or subsidies. But government actions may help this group in the most difficult areas, handling medical expenses.

Government has proposed a medical insurance scheme which will cover 100 million people in next couple of years. This scheme will cover a family of 5, for Rs.5/ lacs each. This means that 500 million people will come under the scheme. Illnesses have been one of the major factors that have ruined poor families’ finances. This scheme can take care of expenses during illnesses. Cynics will talk about difficulty to implement such schemes etc. Have you heard of something called Aadhar lately? Aadhar will be perfect tool to launch such an ambitious scheme.  

There is one more decision that will help millions of farmers. Government has covered 23 different items where farmers will get higher than today’s assured purchase price. This will help farmers, hopefully, from their current financial difficulties. There will be discussion why item A is not under the scheme but B is under the scheme. But this discussion is natural as everyone will be interested in his own well-being. But it is about people who are poor!  

But I see people like you and me cribbing that Income Tax slabs have not been improved. Come on we pay taxes; the majority who need help are those who don’t pay taxes! We worry that deduction against money spent on medical insurance is not increased. Difference is we are able to buy our own insurance, there are millions who can’t even buy it.  People are worried that iPhone, diamonds will become costly, Mercedes will be costly. Can these be even subjects for discussions? Every group of people want their pie to be improved. All want Indian cities to look like foreign cities. Only GDP increase does not do this. There should be minimum people below poverty line in any nation. Budgets now should now try and achieve this. For this all have to work together and support the Government whether it is formed by Party A or Party B!  Let political parties play the blaming game; it is their business but why you and I should be party to this?  Let them treat it as a game show in the Loksabha or outside the Loksabha!

Another thing I have observed post budget this time, is the proliferation of “Experts” being interviewed by newspapers. Since when students, housewives start giving Stars to the budget? Are they even one star in their knowledge about budget? Ask finance guys, ask people from industry, ask people in the know of it. They should be giving an overall opinion. Many real experts have opined about the effect of budget on their areas of work. Their remaining comments were general comments and not sweeping ones. What do the newspapers achieve by asking such a wide spectrum and asking them to give “Stars”? If by chance somebody had come to interview me, I would have 100% said, ” No comments! I am no expert in national budgeting”. 

Our nation is now on auto pilot for growth of GDP because of actions by successive governments. Now our budgets are what they should be, declaration of intents, allocation of funds to the priority sectors as visualized by the government in power. Let us make sure that this does not become lopsided; help poor to come out of their quagmire. Super rich will become richer without budgetary support. You and I should stop cribbing about vegetables being a little costlier, tur dal being a bit expensive. Sky is not going to fall if income tax deduction percentage is not improved. We want better India, smarter India and cleaner and neater India; let us make it all inclusive improvement. There could a little pain for a few groups, bearing it is tough, cribbing is simple. You decide what you want to do. Jaihind! 

 

Innocence or Naivety

In the last decade WhatsApp and Facebook changed the method of human communication in an unprecedented way! Especially, WhatsApp has changed things so much, that people are just not giving a thought before communicating through this medium. But last few months, at least the groups in which I am a member, are observing reducing volume of messages that are exchanged. Most of my groups have senior citizens but I have checked up with a few young folks and I am getting a similar feedback. Major % of messages are so called “forwards”. These come from internet, You Tube, movies and some are creations of individuals about various subjects. These are generally well written, I won’t say that these are well researched. People write articles in such a way that many people assume that they are absolutely genuine! Why people create such unsubstantiated stories is a matter separate discussion. The people who generally fall for such articles are Naïve or Innocent. 

My nephew Ashwin is an Air Force pilot, currently flying with Suryakiran Squadron. Suryakiran squadron has a set of expert pilots who fly the Airplanes in formations which are breath taking. Last December we saw their show during NDA passing out parade. Was it thrilling! We are all proud of Ashwin and his team members. When Ashwin was a child, once we were discussing something over dinner on an ambiguous   subject. He said, “Pramod Kaka this must be true because I have read it in newspaper.” I told him that tomorrow I will print in a newspaper that Ashwin is an idiot. Does it mean that it is true? Then he understood what I was saying. Of course his argument was due to innocence of age.

Advent of internet, WhatsApp and Facebook has created a situation where different types of so called forwards are being shared. I am in a couple of groups where all are engineers and supposedly logical thinking people. Forwards are on different subjects and some are about religious things. I can understand naivety displayed by people about religious forwards, as people react very differently to things involving religion. (Naivety means lack of experience, wisdom, or judgement or unsophistication) But there are some forwards which are about things that involve engineering, business, and technology.

The other day there was a forward about Bajaj Auto Quadricycle. It is a four wheeled vehicle but not a car as declared by the company. The person had shared some photos and said that it is going to be priced at Rs.60000/. I deal with Bajaj Auto very regularly; so I wrote to my friend that what you have written is untrue. The price will be in region of Rs. 2, 00,000/ and launching date is unknown as there is a court case going on in Supreme Court. Immediately he sent a YouTube video on the same subject. I asked him, “what was the point in repeating the same wrong information when I had said that the information shared by me was given to me by someone senior from Bajaj.” My friend said that such videos are there on You Tube and company should clarify their stand on such videos! I had no answer to this! Naivety or Innocence? Or ….

 WhatsApp Image 2017-08-23 at 07.07.08

This caricature is classic case which represents what happens on WhatsApp. Bewakoof is an Urdu word, it means “foolish/stupid/dolt/idiot” in English, while in Hindi it’s called as “moorkh/मूर्ख, ullu/उल्लू. The word Webqoof has been perfectly scripted out the word Bewakoof! This is how  some people, who can be normally called intelligent, behave on WhatsApp! It is the same what  Ashwin had said when he was a child!

Recently there was one forward. It started with a tag line, “This is created by XYZ from ABC Engineering College!” Then there were ¾ lines depicting pictures of  pencil batteries. The forward said, “Please forward this to at least three persons and you will see that your cell phone battery will be fully charged”! This was forwarded by a friend of  mine, Electrical Engineer by training. When I saw this forward, I wrote to him, “Come on friend an Electrical Engineer like you cannot forward such things!” He replied, “What is the harm in trying?” He was honest enough to inform that nothing happened when he forwarded to three guys. The beauty was he kept on arguing that he did it for fun instead of saying that he was stupid to try this!

This brings us back to the original question. Why do people behave in such a way? Does their logical mind go into cold storage? Do they have a brain freeze? Or they have nothing else to do, so to kill time they will try anything! But then what happens to life-long training of logical thinking? I am really at wits end to understand why people behave this way! 

Forward this blog to 100 people and see a magic! Your brain will starting work normally, the way you are supposed to think,  logically, based on common sense! Let me know! Oh, I got converted with the bandwagon!